By Olga Yashkova, Industry Analyst/Program Leader, Frost & Sullivan

Olga Yashkova (OY): Spirent Communications is a cornerstone of the Communications Test & Measurement industry. Can you brief us on some of the changes Spirent has gone through over the past two years as well as the reason behind this transformation?

Bill Burns

Bill Burns (BB): Spirent's made many strategic and operational changes over the last two years which were focused on building a stronger company to better serve our customers, employees and shareholders. That's what really matters.

Our improved supply chain strategy, for instance, allows us to deliver products to our customers as effectively and efficiently as possible. We've enhanced our time-to-market capabilities by distributing our solutions to customers only when they want them. This means more predictability in the manner we introduce new products and releases. This also ensures we offer solutions with new features and functionality that best serve our customers early on in the development cycle.

We're continuing to invest in new testing technologies for wireless, Ethernet, location-based and in-home applications. At the end of the day, our market-leading products and services are designed to help improve customer productivity, reduce their overall costs, drive their revenue growth and reduce customer churn.

We're focused on introducing the right products at the right time while being profitable across all of our divisions.

OY: You continued to introduce new features and functionalities on Spirent's next-generation test platform - Spirent TestCenter. Can you talk to us about this?

BB: We realized early on that our customer are moving from separate solutions for performance and application testing to a single platform they would buy once, train once and use multiple times for both performance and application testing. As a true layer 2 to layer 7 test platform, the modular design of Spirent TestCenter allows our customers to conduct fully integrated, automated testing across all network elements and applications. Furthermore, as our customers migrate from existing technologies to new network architectures and topologies, we are with them to meet the needs of their multi-play, multi-platform networks.

The latest introductions to Spirent TestCenter address the pain points of companies such as Cisco, AT&T, Juniper, Nortel, and Alcatel-Lucent, which are conducting high performance testing in an effort to subject their next generation Ethernet solutions to realistic and scalable real-world scenarios. Our competitors are purely increasing port density without addressing the performance considerations that are required to achieve complex Next Generation Network (NGN) testing. Such an approach provides little value to the test engineers of the future. Spirent TestCenter is very successful with more than 400 customers and generates over $100 million globally for our company.

OY: Where are Spirent TestCenter's 400 customers located?

BB: Spirent TestCenter is sold globally with North America accounting for about 50 percent of our business. The remaining business is split between Europe and Asia. We are enjoying healthy growth in all regions.

OY: Historically, Spirent has mainly focused on serving the needs of equipment manufacturers, service providers, enterprises and the government. How has this changed and how do you see it changing going forward?

BB: Spirent's key strength is serving companies across the technology lifecycle including chip manufacturers and equipment vendors as well as service providers and enterprises. This gives us an early advantage in the marketplace. For example, there has been a focus on data centers in enterprise environment especially with the evolution toward converged technologies such as Fibre Channel over Ethernet (FCoE). Spirent was the first company to introduce a test platform for this space. Service providers are now more focused on the convergence of wireline and wireless networks and the introduction of technologies that power the Internet expansion. Understanding our customers is extremely important as we look into the future and where our business will transition over time.

There are also new players emerging including Google, Skype, Vonage and middleware manufacturers such as Microsoft – that's another area of focus for us.

OY: In your opinion, what are the key concerns of your end-users? What is Spirent doing to help them overcome the challenges they are facing?

BB: We are in difficult economic climate and our customers are facing three critical concerns- protecting and maintaining revenue from the end-user; growing revenue by identifying and expanding into new markets; and containing costs while protecting margins.

To maintain their revenue stream, our customers must ensure the highest quality of experience for the subscriber while continuing to preserve the quality of service. Spirent, thorough our lab and field products, enables equipment manufacturers and service providers to develop and deploy high performance solutions that meet and even exceed subscribers expectations.

Finding new revenue opportunities comes through innovation. If service providers are building out a new network, we enable them to more efficiently deliver new products and services which further increases revenue potential. Equipment manufacturers are also under pressure to innovate despite the difficult economic climate. Spirent's core mission is to support our customer in their innovation efforts.

Increased competition- whether it is across wireless, wireline or cable networks – is forcing our customers to closely watch their costs. We offer solutions for both the lab and the field that help improve testing productivity while reducing overall capital and operating expenses. For example, we allow service providers and equipment vendors to invest in automation that significantly streamlines the testing process by improving test cycle times. We also allow our customers to quickly and correctly uncover any network problems and address them in a timely manner. This helps limit costs associated with service downtime and product failures. Spirent's entire portfolio addresses the protection and growth of revenue as well as cost containment from the lab to a live environment. This approach allows Spirent to be a true testing partner to our customers.

OY: In your opinion, what are some of the most significant market and technology trends in the industry today?

BB: The first and foremost is that Ethernet is king. There's no doubt that the focus is on Ethernet whether it is in the data center, a LAN environment, at the edge or core or for mobile backhaul applications. Ethernet is here to stay. I believe Ethernet will continue to escalate in speed and further evolve as a standard. The standards bodies have done a great job resolving all the issues or barriers associated with using Ethernet as a technology. Ethernet has escalated from 1 Gigabit (Gig) to 10 Gig today, and will migrate to 40/100 Gig in the future. Ethernet will play an important role in the future whether it is in wireline or wireless networks.

The mobile Internet is another significant trend. Clearly service providers are moving to 3G and 4G networks and services and Spirent has a strong product portfolio that will help them migrate and take advantage of emerging services and technologies.

We're also seeing a rise in end-to-end automation. In 2007, we formed the industry's first automation alliance – Test Automation Alliance (TAA) – by bringing together best-in-class companies to offer customers true automation in the lab. Physical automation, power automation, test scripting and device under test control assessments are conducted through our test partnership alliance allowing us to deliver the best solution. In the service provider environments, it is all about automated testing. Whether it is a centralized test tool or a field test tool, service providers want automated testing in an effort to gain meaningful network analysis as opposed to looking at tons of data that would have to be interpreted.

Finally, there are a lot of changes taking place inside the home from a technology standpoint. We are seeing continued deployment of MOCA, HPNA and Ethernet inside the home. This presents numerous challenges for service providers trying to deploy triple- play services in the home. As a result in-home testing is critical.

OY: From a geographic perspective, which markets do you consider as key for the company today and which ones do you consider key for future growth?

BB: We have 1,700 customers in 30 countries today. We see a growth opportunity in North America within the Ethernet and data center space. There is a continued focus in Europe on IPTV, WiMAX deployments and next-generation wireless systems. The focus in Asia is clearly on the mobile applications and carrier Ethernet. Recently we have seen significant growth in the Asia–Pacific market and we will continue to strengthen our presence in this region, particularly China and India. We have seen investments by North American and European network equipment vendors and now find Chinese manufacturers such as ZTE and others investing outside China as well. This is creating great opportunities for Spirent.

OY: What are some of the untapped market and technologies areas that Spirent is planning to pursue going forward in 2009?

BB: In 2009, Spirent will continue to invest in several key growth segments such as Ethernet testing, test automation, Enterprise data center testing and mobile Internet testing. The Ethernet testing space, especially, 10GigE testing holds tremendous promise. While there is a lot of talk about 40GigE and 100 GigE testing, at the present time our customers are focused on 10GigE. We are making great strides in this space with Cisco and other large network equipment manufacturers. We remain the preferred test partner for next-generation Ethernet testing products as major network equipment manufacturers race to introduce high density, 10GigE network elements that are powering the Internet expansion and data center evolution.

Test automation and professional services also are big opportunities for us. Test lab managers are looking for advanced automation solutions that leverage their existing investments. This is where Spirent and the TAA come in. Unlike, other automation frameworks, the TAA provides a solution that is built around customer testing needs, not around a test vendor's platform. As a result our customers don't have to rip out what they have in the lab to work with the TAA's Automation Continuum framework. For this reason, customers prefer working with us since we are not forcing them to use something they don't want. Instead we let them choose the best solution for their needs.

The Enterprise data center piece is becoming a very important focus for network equipment suppliers and vendors. Spirent is working with Brocade, Cisco and others to evolve their customer data centers while continuing to enjoy the benefits of the most innovative, high-performance data center fabric technologies available today.

Mobile Internet is yet another area of focus for us. The idea of delivering Internet access, anytime, any place, is quite appealing. This creates opportunities for us. Location-based testing, satellite simulation and GPS testing are big growth areas. We are seeing more and more opportunities in global situational awareness – in other words knowing where the subscriber is at any time and feeding information about the closest restaurant or gas station. GPS will continue to be an important part of mobile devices moving forward and we do testing in that environment. That approach makes Spirent unique.

OY: Spirent is doing a good job on the test automation front.

BB: Yes, that's true. Our customers have a "buy it once, train on it once, use it multiple times" mentality and that's not surprising. For instance, customers are trying to test layer 2 - 7 applications on the same device. Developing a Layer 2-7 test platform that is easy to use and automated is not a simple task but we have done a pretty good job in that regard. Do we have more work to do? Absolutely, but we have realized that it's not just about us. It is about the customer's total environment and that is why the TAA makes sense from our perspective.

OY: Can you brief us about Spirent's supply chain management system (distribution structure/channel and support)? What is your strategy from this perspective?

BB: Operational efficiency is the key to our continued success. We selected Celestica, a best in class global manufacturing supplier. The company has done a great job in improving our supply chain model by working closely with us to deliver cost- effective products in a timely fashion while giving us the flexibility to quickly respond to our customers as well as to changes in overall demand.

OY: What are the most significant challenges Spirent faces in the market today? How are you overcoming such challenges?

BB: Testing continues to be viewed as a routine task and often as an afterthought. Spirent's challenge is communicating to our customers that testing early in the lifecycle of a product or service - whether you are an equipment manufacturer or a service provider – is critical. We must continue to get people to think of testing on the front end of the product or service development process as opposed to the back end. Separately, our customers are becoming more cautious with their spending. Nevertheless, we have done well in this environment based on our diverse solutions.

We must also tackle the challenge of continuing to evolve our solutions in a way that addresses the growing complexities associated with testing. Specifically, we must ensure ease of use and automation to allow our customers to utilize our solutions efficiently and effectively in complex network environment.

Last but not least, the current economic climate is certainly a challenge, as it is for the entire industry. We continue to invest in innovative products and expand our professional service expertise, while keeping costs in check.

OY: How do you train end-users regarding Spirent's value proposition?

BB: Much of this work is accomplished through our seminars, newsletters, tradeshow presence, marketing events and direct sales efforts. All those things are important in terms of staying in front of our customer. In addition, we continue to talk to our customer every single day.

From a value proposition perspective, our global reach as a company, our diverse technology portfolio and our offerings for use in the lab as well as live networks allow us to have multiple conversations along the whole value chain from the chip suppliers to the Enterprise customers. We can then take that knowledge to our customers to work with them.

Understanding technologies and applications early in the lifecycle and taking them all the way through to service delivery in the service provider environment is a competitive advantage.

OY: What are some of the best practices adopted by Spirent in the market and what are some of the special initiatives taken to improve awareness among end-users?

BB: Spirent is involved in all the standards bodies as they relate to the evolution of technology. It is important for the test vendor to understand what is happening from a technology perspective. Partnering with best in class companies is also key. Ultimately, it's about delivering high quality solutions for the best value. What customers want to see is "how do you actually offer me true value in what I am doing?" We conduct many demonstrations for our customers and show them the value our solutions could play in their environment. This improves their awareness of our products and what we can do for them. Our expanded and enhanced Spirent Proof of Concept (SPOC) Labs and Collaboration Centers help demonstrate our expertise.

OY: What do you, as CEO of the company, want to accomplish in the next couple of years? How would you define success for yourself and for Spirent?

BB: For our customers, we want to be their testing partner of choice - a strategic partner. From a shareholder perspective, we want to deliver profitable growth - that is what our shareholders are looking for. From an employee perspective, we must retain and recruit the most talented people in the industry.

I want to continue to deliver profitable growth by being a testing partner of choice for our customers, while retaining and attracting the best talent. Success for me is really delighting all of our customer, our shareholders and our most valuable asset in the company – our employees.

OY: Those are serious tasks, but I am sure that you will succeed and take Spirent to the next level.

BB: There are a lot of opportunities for testing and our product portfolio gives us a significant advantage. We are excited about the growth in wireless, in Ethernet and in the triple-play space. Almost every equipment vendor and service provider globally of any scale is our customer. Spirent's greatest strength has been its ability to build on its customer relationships, and innovate while delivering best-in-class solutions to market.